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Image by cryptospace.it article about how smart contracts work like vending machines
Image by cryptospace.it article about how smart contracts work like vending machines

General

How Smart Contracts are like Vending Machines

We will start with a short introduction to smart contracts in general and then use vending machines as a metaphor to give an in-depth description of how smart contracts work.

We will conclude with more examples of how smart contracts can be used and more simple metaphors for smart contracts.

What are Smart Contracts

Smart contracts are self-executing programs, called contracts, with the terms of the agreement between buyer and seller being directly written into lines of code.

What this means is that the contract can be enforced automatically, without the need for intermediaries or manual intervention.

The code and the agreements contained in a smart contract are stored and replicated on a blockchain network.

The Vending Machine Metaphor

A vending machine can serve as a simple metaphor for understanding how smart contracts work.

Just as a vending machine is programmed to release a product when the correct amount of money is inserted, smart contracts are programmed to automatically execute the terms of an agreement when certain conditions are met.

Let’s say you want to purchase a can of soda from a vending machine.

You insert the correct amount of money, make your selection, and the vending machine dispenses the can of soda.

This transaction occurs without the need for a store clerk to facilitate the exchange. The vending machine is programmed to automatically release the product when the correct payment is received.

In the same way, smart contracts or smart programs are programmed to automatically execute the terms of an agreement when certain conditions are met.

For example, a smart contract might automatically release payment to a supplier when a shipment of goods is received, or trigger a notification to the supplier if the shipment is delayed.

In the case of a vending machine, the terms of the agreement (i.e., the price of the product and the condition that payment must be received before the product is released) are clearly stated and automated. You press the buttons for a can of soda and the program is executed after verification.

Similarly, the terms of the smart contract are clearly stated in the code and are automatically enforced.

As you can see in the image, the smart contract is published and validated on a distributed ledger (a good decentralized blockchain).

This helps to ensure that the terms of the agreement are followed and that both parties in the digital contract are held accountable.

Just like a vending machine, the contracts/programs are programmed to automatically execute the terms of an agreement when certain conditions are met, helping to streamline and secure transactions.

Overall, they are a powerful tool for automating and securing agreements between parties, making transactions faster and more efficient.

The features and benefits of smart contracts. Image Credits to Turing.com

More Examples of how to use Smart Contracts

Smart contracts have the potential to revolutionize many industries by streamlining and automating complex processes, reducing the need for intermediaries, and increasing transparency and security.

They can be used for a wide range of applications, such as supply chain management, real estate, and financial transactions:

Supply chain management

Smart contracts can be used to automate and streamline the process of managing a supply chain.

For example, a smart contract might automatically release payment to a supplier when a shipment of goods is received, or trigger a notification to the supplier if the shipment is delayed.

A cryptocurrency that builds on this usecase is OriginTrail.

Real estate

Here blockchain contracts can be used in the real estate industry to automate the process of buying and selling property.

For example, a smart contract might automatically transfer ownership of a property from the seller to the buyer when the purchase price is paid.

A cryptocurrency that tries to put Real Estate on the blockchain is Landshare.

Financial transactions

Smart contracts can be used to automate financial transactions, such as the exchange of currency or the execution of a trade.

For example, a smart contract might automatically execute a trade of a financial asset when certain conditions are met, such as the price reaching a certain level.

Especially in the financial world smart contracts have the potential to revolutionize the financial world and possibly replace (parts of) banks.

Legal agreements

They can also most definitely be used to automate the process of enforcing legal agreements.

For example, a smart contract might automatically release funds from an escrow account when the terms of a contract are fulfilled.

Or your house can be used to create a non-fungible token and you could potentially sell it without middlemen in the future, when regulations catch up. Well, if you even own a house by then.

More Metaphors for Smart Contracts

GPS navigation system

Think about a GPS navigation system for a car. Just as a GPS system helps guide a car from one location to another by providing directions and automatically updating based on real-time traffic conditions, smart contracts can help guide a transaction from one party to another by automating the terms of the agreement and updating based on real-time conditions.

Thermostat

Just as a thermostat automatically adjusts the temperature of a home based on pre-set conditions, smart contracts can automatically execute the terms of an agreement based on pre-set conditions. Think about domotica like automatic gorcery shopping and much more.

For example, a smart contract might automatically release payment to a supplier when a product is delivered on time.

Security System

Smart contracts are like a security system for a home. Just as a security system helps protect a home by automatically triggering an alarm when certain conditions are met (e.g., a door is opened), smart contracts can help protect the interests of parties involved in a transaction by automatically enforcing the terms of the agreement that was deployed on the blockchain.

Lastly,

Last Updated on 20/12/2022 by Staff

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